New bill would allow private employers to offer time off in lieu of extra pay

A new billthat Republicans proposed in April would give private sector employers the same flexibility with regard to overtime compensation that public employers currently enjoy. The Working Families Flexibility Act—not to be confused with the earlier Democratic bill of the same name (see “Name Game”)—would amend the Fair Labor Standards Act to allow private employers to offer compensatory time off to employees who work extra hours instead of giving them overtime pay. Public employers already have this option.

This policy would be optional and would have to be agreed upon by both companies and employees (or the unions that represent them). For each hour of overtime worked, companies would give 1.5 hours of compensatory time, up to 160 hours total comp time per year. Employers would then pay the value of any comp time not taken at the end of a 12-month period within 31 days.

The House of Representatives approved the bill on May 8, and as of press time it was awaiting action by the Senate.

Party Lines

This isn’t the first time Republicans have introduced a private sector comp time bill. Other attempts include the 2009 Family-Friendly Workplace Act and the 2003 Family Time Flexibility Act. The latest bill’s supporters say that it will give employers flexibility in scheduling and offer employees the chance to take more time off for family events or vacations.

Democratic opponents argue that the bill would give interest-free loans to employers, which can avoid paying overtime until the end of the 12-month period, and that it would force employees to choose between money and their families.

“[Comp time bills] always face the same opposition,” says Paul DeCamp, a partner at Jackson Lewis and former administrator of the Department of Labor’s Wage and Hour Division. “The argument is [that] employers will coerce their workers to accept comp time in lieu of cash overtime payments and that those agreements by the workers won’t truly be voluntary.”

Due to this opposition, DeCamp says that the chances of the Working Families Flexibility Act becoming law are “fairly remote”—it will likely die in the Senate without Democratic support.

“Plus, I don’t see the president signing it,” DeCamp adds. Indeed, the White House issued a statement on May 6, saying that the “administration strongly opposes” the legislation, and if it appears before Obama, “his senior advisors would recommend that he veto the bill.”

Cheryl Wilke, a partner at Hinshaw & Culbertson, agrees that the bill will have a tough time succeeding. “Amendments to the Fair Labor Standards Act have been notoriously difficult to pass,” she says.

However, regardless of how this particular bill does in Congress, DeCamp says he thinks Republicans will continue to raise the issue.

Business Benefits

The ability to offer compensatory time in lieu of money would be a useful tool to help employers manage their cash flow. Large projects that require employees to work a lot of overtime wouldn’t necessarily have a huge price tag attached if workers could just take some time off when the project is over. Comp time also provides a huge advantage for seasonal employers.

“Many labor-intensive employers—temporary staffing, retail, transportation—have peak seasons and slow seasons,” Wilke says. “So instead of paying employees a constant wage throughout the year, then overtime for peak seasons, they would be able to average out.”

Seen that way, the “interest-free loan” argument makes sense.

“You get to go ahead and use your employees for financial planning purposes,” Wilke says. “They actually become your bank.”

It’s important to remember, though, that these policies are opt-in, “entered into knowingly and voluntarily by … employees and not as a condition of employment,” the bill reads. This means, in theory, the employees participating would feel that they, too, were benefiting from the agreement. If they choose, they can store up additional vacation time in a bank, and if they don’t use it or decide later that it’s a bad deal, they can cash in unused time for money.

“There may be employees who find that very tempting,” Wilke says.

Logistical Issues

When an employee wants to use her comp time, she puts in a request, and the employer should permit her to use it “within a reasonable period after making the request if the use of the compensatory time does not unduly disrupt the operations of the employer,” according to the bill.

“If you get a bonehead supervisor, [he] might be difficult on how the comp time is being used, and in that instance problems can arise,” DeCamp says. “For comp time to work, you have to have an employer and an employee operating in reasonably good faith.”

There are other logistical problems that will surely crop up if the bill passes. For example, what if an employee with comp time saved up is fired before he has a chance to use it? What if he needs to take regular sick time on a day he was expected to work overtime?

“There can be benefits to both employees and employers, [but] it’s logistically challenging,” Wilke says.

Perhaps for just this reason, the bill has a five-year sunset, meaning it will expire after five years.

“The idea behind that is to study [the bill’s] impact and then, after five years’ time, you would have had five years of experience to see how in practice the law was being implemented,” says Ilyse Schuman, a shareholder at Littler Mendelson.

This built-in expiration date would allow in-house counsel to test out the comp time tool and see if it’s the right fit for managing their business’s workforce and cash flow.